Merger fever

Independent hospitals join forces with expanding health systems

  •  | 
Print this page by Marjolijn Bijlefeld

The number of independent hospitals in Virginia soon will be down to a dozen. Since July, Harrisonburg-based RMH Healthcare (the parent organization of Rockingham Memorial Hospital) and Charlottesville-based Martha Jefferson Hospital have announced they will become affiliates of not-for-profit Sentara Healthcare.

Norfolk-based Sentara is practically ubiquitous in the Hampton Roads area, with seven hospitals and an eighth slated to open next year, along with its 400,000-plus-member Optima Health plan and a 380-doctor medical group. But it had no presence in the Harrisonburg and Charlottesville areas until now. This, however, is not the first time Sentara has moved beyond its home base into new territory. Last year, Potomac Hospital in Woodbridge, in Prince William County, joined the Sentara network.

With health-care reform mandates, increasingly sophisticated and costly equipment demands and a sagging economy, “it’s become a tough road for independent hospitals,” says Katharine M. Webb, senior vice president of the Richmond-based Virginia Hospital & Healthcare Association. Yet that doesn’t mean that the independent hospitals merging with larger health systems are distressed. In fact, some independent community hospitals are the ones initiating the search. They were looking for health systems that will provide access to capital and other resources so that they can continue to serve their communities. The mergers are good moves for the health systems, too, because they can move into new territories with a patient base already in place.

That was the situation for the proposed affiliations of RMH Healthcare and Martha Jefferson Hospital with Sentara. “There’s tremendous pressure on small institutions,” says David Bernd, CEO of Sentara Healthcare. “The regulations are becoming more complex, and many are seeing an advantage in being part of a larger integrated delivery system.” For example, he cites Medicare’s 0.4 percent reduction for average inpatient payments to hospitals, announced in July and taking effect in fiscal year 2011. “Historically, those rates have increased 2.4 percent to 4 percent a year, so an actual cut is a bellwether change,” Bernd says.

At the 176-bed Martha Jefferson Hospital, which announced its merger with Sentara in late September, the board had been looking at an affiliation for several years. “The actual meetings with five organizations started taking place earlier this year,” says Jenn McDaniel, media relations specialist at the hospital. “We were looking for an organization that had a similar culture and similar vision. During those meetings, Sentara emerged as the front runner.” She cites the company’s quality and technology initiatives. “Sentara strives to be in the top 10 percent nationally for clinical performance, so we hope we can benefit from that.”

Even while the strategic plan was to affiliate eventually with a larger health system, Martha Jefferson moved forward on other plans, including the construction of a replacement hospital, which is on track to open next August. The merger, which can take six to eight months to complete, may coincide with that opening. (RMH Healthcare, by the way, also recently opened a 238-bed replacement hospital for Rockingham Memorial.) “We recognize that we’re very good,” McDaniel says. “But we want to be great. By joining a health system, at a time when there are profound changes going on in health care, we can continue to provide the services our community has come to expect.”

Advantages of affiliations
Affiliations have financial advantages, such as shared overhead and better pricing, but they also can make it easier for smaller hospitals to recruit physicians. New doctors and medical residents might be more interested in large health systems than they would be in smaller, standalone hospitals. Joining a larger health system also offers smaller hospitals the chance to take advantage of best-practice strategies, ideas that improve care and patient management. Health systems can analyze data on a much larger patient base to develop clinical guidelines.

For example, Manassas-based Prince William Health System (the parent organization of Prince William Hospital) appears to have benefited from its acquisition last year by Novant Health, an 11-hospital nonprofit health system based in Winston-Salem, N.C.  As part of the agreement, Novant pledged $200 million toward expansion in the western part of the county. The Prince William Health System quickly broke ground on a $4.7 million, 4,334-square-foot cardiac catheterization lab scheduled to open early next year. Prince William also is awaiting the state’s decision on a certificate of public need application to build a 60-bed hospital in Haymarket.

An earlier proposed merger between Prince William and Falls Church-based Inova Health System, the largest hospital network in Northern Virginia, fell apart in 2008 because of a legal challenge from the Federal Trade Commission.

Jim Tobalski, senior vice president at Novant Health, says that while access to capital is certainly important, there are other strengths that a health system can bring to a smaller hospital. For example, Novant undertook “a relentless initiative to improve hand hygiene about five years ago. All of our hospitals pursued it simultaneously, and from that, you learn what’s successful,” he says. The results of the hand-washing program were impressive. Compliance with hand hygiene increased from 49 percent to 99 percent, and the behavior change led to a 53 percent reduction in methicillin-resistant staphylococcus aureus (MRSA) systemwide. The initiative earned the company the 2008 Ernest A. Codman Award for dramatic improvements in quality and safety from The Joint Commission, a private, nonprofit health-care accrediting organization. “The fiscal advantages are certainly important, but the safety and quality aspects are, too,” Tobalski says.

Prince William is Novant’s first hospital in Virginia. Tobalski believes that moving into a territory where the Novant name is not well known has some advantages. “Sometimes hospitals look at potential partners based nearby with more scrutiny,” he says. “They may feel that there’s a risk of being consumed by the larger health system. Novant had no other regional facilities in Northern Virginia. Our only interest is in making Prince William the strongest hospital in that service area.”

Keeping the name
Allowing an es­­­tablished community hospital to keep its identity is important, says Sentara’s Bernd. The official names of Rockingham Memorial and Martha Jefferson un­­­­­­­­der the health system have yet to be announced. Sentara’s pattern, how­­­­­­­­­ever, has been to simply add its name to the existing name of new affiliates. Potomac Hospital, for example, became Sentara Potomac Hospital.  In discussing the RMH Healthcare merger, Bernd says, “Rockingham Memorial Hospital has a great reputation, so that name will remain in the community. Most of the changes we will make would be invisible to the public. Their people stay there, and we will provide expertise and management to help with installation of new systems.”

At Prince William, Novant selected one of its own executives, Melissa Robson, as head of the hospital and CEO of the Novant Health Northern Virginia market. Robson, who had served as CEO of Novant’s Rowan Regional Medical Center in Salisbury, N.C., replaced Michael Schwartz, who had announced that he would retire when the hospital found a partner. Tobalski says that Schwartz helped in the selection process.

While Novant has been expanding into Virginia, Winchester-based Valley Health has been acquiring hospitals outside the state. Valley Health now operates four hospitals in Virginia and two in West Virginia. Tom Urtz, Valley Health’s director of marketing and public relations, says that, in many ways, the April acquisition of War Memorial Hospital in Berkeley Springs, W.Va., was a logical extension of the health system’s operations. Valley Health has been managing the hospital for 20 years. “We’re 12 miles from the West Virginia border,” he says. “About a quarter of our patients [at Valley Health’s Virginia hospitals] are West Virginia residents.”

Valley Health broke ground on an 87,000-square-foot facility for War Memorial Hospital in June. That new site is expected to be completed in 2012, and a new $30 million hospital in Romney, W.Va., will open in 2011. Four of the hospitals in the Valley Health system —  these two, Page and Shenandoah Memorial in Woodstock — are critical-access hospitals for underserved areas. They have no more than 25 beds. However, by making sure that these small hospitals are capable of providing as much care as possible benefits the system’s tertiary-care hospital, the 411-bed Winchester Medical Center.

New territory for HCA
Acquisitions aren’t the only way that health systems are expanding into new territories. HCA Virginia, for example, opened the 126-bed Spotsylvania Regional Medical Center near Fredericksburg in June. The regional health system is part of Nashville, Tenn.-based HCA, which has 170 hospitals nationwide. HCA Virginia operates 13 hospitals, clustered in the Richmond area, Southwest Virginia and Northern Virginia. Spokesman Mark Foust says that Spotsylvania Regional was an exception to its “loosely defined rule of expanding in existing markets. The reason was that there was such a strong community need, and the county was proactive in asking us to build there.” Also, being essentially halfway between HCA’s Richmond and Northern Virginia hospitals is an advantage, says Foust.

“We position our hospitals as individual entities, responsive to the local community,” the spokesman says. But the hospitals also benefit from protocols developed across the system. For example, HCA went through an 18-month process to reduce wait times and improve quality of care for emergency room patients. “Five of every 100 inpatients in America are treated in an HCA hospital,” Foust says. “The lessons we learn from that can be applied across all 170 hospitals.”

The result of that initiative is a campaign in which the home page of an HCA hospital website displays the approximate current wait time at the emergency room. The posted wait times reflect a rolling four-hour average and are updated every 30 minutes.

National recognition
While the number of independent hospitals in the commonwealth continues to dwindle, the expansion of health systems has benefited patients, says Katharine Webb of the Virginia Hospital & Healthcare Association. “The proof is in the pudding. The Dartmouth Atlas and other rankings show that Virginia is a relatively low-cost and high-quality state.”

Several of the health systems operating in Virginia are recognized nationally as leaders. In September, Sentara Healthcare received the 2010 Health Information Management Systems Society Davies Award for its eCare electronic health records system. The system includes a highly sophisticated dashboard with both business and clinical metrics for better patient care and management of its operations.

Also in September, Inova Health System was named one of America’s top 500 most innovative companies, as part of the 2010 InformationWeek 500, an annual listing of the most innovative users of business technology.

In addition, the Virginia Tech Carilion School of Medicine and Research Institute opened this fall with 42 medical students. The school is a joint venture between Virginia Tech and Carilion Clinic, a Roanoke-based health system.

In today’s financial environment, small community hospitals would be hard-pressed to spend millions on a new facility, Webb notes. “Hospitals are pretty capital-intensive organizations. You don’t just do that with cash lying around,” she says. So the trend toward consolidation is likely to continue.

Strong independent hospitals will remain, says Novant’s Tobalski. “But even they go through the periodic evaluation process to determine if they could better service their community if they were affiliated.” That has been the driving force behind the latest round of mergers. “We wouldn’t be in Prince William if the hospital hadn’t been interested,” he says. 

List of independent acute-care hospitals in Virginia

Centra, Danville Regional file competing proposals

An educated approach

Reader Comments

comments powered by Disqus

showhide shortcuts